CFPB Slams Toyota Motor Credit with $60 Million Penalty for Unlawful Practices and Credit Reporting Violations

The Consumer Financial Protection Bureau (CFPB) has mandated that Toyota Motor Credit Corporation, the U.S.-based auto-financing arm of Toyota Motor Corporation, pay $60 million in consumer redress and penalties for engaging in an illegal scheme. The scheme aimed to prevent borrowers from canceling product bundles that increased their monthly car loan payments, while also withholding refunds or refunding incorrect amounts on these bundled products. The company is accused of knowingly damaging consumers' credit reports with false information.

Breach of Consumer Financial Protection Act and Fair Credit Reporting Act

CFPB Director Rohit Chopra emphasized the severity of Toyota Motor Credit's actions, stating, "Toyota's lending arm illegally withheld refunds, made borrowers run through obstacle courses to cancel unwanted services, and tarnished their credit reports." The CFPB's order requires Toyota Motor Credit to cease its unlawful practices, pay $48 million in restitution to affected consumers, and contribute a $12 million penalty to the CFPB's victims' relief fund.

Unlawful Practices and Harmed Consumers

The order outlines several ways in which Toyota Motor Credit violated consumer financial laws, including:

1. Obstacle Courses for Cancellation: The company intentionally made the process of canceling bundled products, such as Guaranteed Asset Protection (GAP) and Credit Life and Accidental Health (CLAH) coverage, unnecessarily difficult. Consumers attempting to cancel over the phone were directed to a "retention hotline," where representatives were instructed to discourage cancellations until a consumer had verbally requested it three times.
2. Delayed Refunds: Instead of issuing timely refunds for canceled products, Toyota Motor Credit applied the refund amount to principal payments, reducing the number of monthly payments. This tactic was used to discourage cancellations by informing consumers that monthly payments would not decrease and direct refunds would not be provided.
3. Withholding or Inaccurate Refunds: The company failed to refund prepaid GAP and CLAH premiums to consumers who paid off loans or ended leases before contract completion. Faulty calculations also led to incorrect refunds for consumers canceling vehicle service agreements.
4. False Reporting to Credit Agencies: Toyota Motor Credit falsely reported customer accounts as delinquent even when customers had returned leased vehicles. The company failed to promptly correct inaccurate information sent to consumer reporting companies.

Enforcement Action and Remediation

The CFPB's enforcement action mandates the following from Toyota Motor Credit:

1. Consumer Redress: Paying nearly $48 million in consumer redress, including compensation for consumers who did not receive refunds, those unable to cancel coverage, and those affected by false credit reporting.
2. Cessation of Unlawful Practices: Prohibiting the tying of employee compensation to consumers' retention of bundled products, making cancellation of unwanted coverage more accessible, monitoring auto dealers for unauthorized imposition of products, and informing consumers about their ability to remove products.
3. Civil Penalty: Contributing a $12 million civil penalty to the CFPB's victims' relief fund.

The enforcement action underscores the CFPB's commitment to holding large auto lenders accountable for unfair and abusive practices, particularly those that negatively impact consumers' financial well-being. The order serves as a reminder to financial institutions to uphold fair and transparent practices in their dealings with consumers.

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